VYM vs. HYG: What’s The Difference?

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) and the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) are both among the Top 100 ETFs. VYM is a Vanguard Large Value fund and HYG is a iShares High Yield Bond fund. So, what’s the difference between VYM and HYG? And which fund is better?

The expense ratio of VYM is 0.42 percentage points lower than HYG’s (0.06% vs. 0.48%). VYM also has a high exposure to the financial services sector while HYG is mostly comprised of BB bonds. Overall, VYM has provided higher returns than HYG over the past ten years.

In this article, we’ll compare VYM vs. HYG. We’ll look at portfolio growth and fund composition, as well as at their risk metrics and industry exposure. Moreover, I’ll also discuss VYM’s and HYG’s holdings, performance, and annual returns and examine how these affect their overall returns.

Summary

VYM HYG
Name Vanguard High Dividend Yield Index Fund ETF Shares iShares iBoxx $ High Yield Corporate Bond ETF
Category Large Value High Yield Bond
Issuer Vanguard iShares
AUM 48.5B 20.03B
Avg. Return 12.20% 6.42%
Div. Yield 2.79% 4.44%
Expense Ratio 0.06% 0.48%

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) is a Large Value fund that is issued by Vanguard. It currently has 48.5B total assets under management and has yielded an average annual return of 12.20% over the past 10 years. The fund has a dividend yield of 2.79% with an expense ratio of 0.06%.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) is a High Yield Bond fund that is issued by iShares. It currently has 20.03B total assets under management and has yielded an average annual return of 6.42% over the past 10 years. The fund has a dividend yield of 4.44% with an expense ratio of 0.48%.

VYM’s dividend yield is 1.65% lower than that of HYG (2.79% vs. 4.44%). Also, VYM yielded on average 5.78% more per year over the past decade (12.20% vs. 6.42%). The expense ratio of VYM is 0.42 percentage points lower than HYG’s (0.06% vs. 0.48%).

Fund Composition

Holdings

VYM - Holdings

VYM Holdings Weight
JPMorgan Chase & Co 3.53%
Johnson & Johnson 3.28%
The Home Depot Inc 2.59%
Procter & Gamble Co 2.48%
Bank of America Corp 2.35%
Exxon Mobil Corp 2.02%
Comcast Corp Class A 1.96%
Verizon Communications Inc 1.75%
Intel Corp 1.71%
Cisco Systems Inc 1.69%

VYM’s Top Holdings are JPMorgan Chase & Co, Johnson & Johnson, The Home Depot Inc, Procter & Gamble Co, and Bank of America Corp at 3.53%, 3.28%, 2.59%, 2.48%, and 2.35%.

Exxon Mobil Corp (2.02%), Comcast Corp Class A (1.96%), and Verizon Communications Inc (1.75%) have a slightly smaller but still significant weight. Intel Corp and Cisco Systems Inc are also represented in the VYM’s holdings at 1.71% and 1.69%.

HYG - Holdings

HYG Bond Sectors Weight
BB 56.53%
B 31.27%
Below B 11.4%
BBB 0.61%
AAA 0.28%
A 0.0%
AA 0.0%
US Government 0.0%
Others -0.09%

HYG’s Top Bond Sectors are ratings of BB, B, Below B, BBB, and AAA at 56.53%, 31.27%, 11.4%, 0.61%, and 0.28%. The fund is less weighted towards A (0.0%), AA (0.0%), and US Government (0.0%) rated bonds.

Risk Analysis

VYM HYG
Mean Return 1.04 0.46
R-squared 88.88 4.1
Std. Deviation 12.69 6.96
Alpha -0.7 3.58
Beta 0.88 0.48
Sharpe Ratio 0.93 0.7
Treynor Ratio 13.24 10.01

The Vanguard High Dividend Yield Index Fund ETF Shares (VYM) has a Treynor Ratio of 13.24 with a Beta of 0.88 and a R-squared of 88.88. Its Sharpe Ratio is 0.93 while VYM’s Mean Return is 1.04. Furthermore, the fund has a Alpha of -0.7 and a Standard Deviation of 12.69.

The iShares iBoxx $ High Yield Corporate Bond ETF (HYG) has a Alpha of 3.58 with a R-squared of 4.1 and a Beta of 0.48. Its Sharpe Ratio is 0.7 while HYG’s Standard Deviation is 6.96. Furthermore, the fund has a Mean Return of 0.46 and a Treynor Ratio of 10.01.

VYM’s Mean Return is 0.58 points higher than that of HYG and its R-squared is 84.78 points higher. With a Standard Deviation of 12.69, VYM is slightly more volatile than HYG. The Alpha and Beta of VYM are 4.28 points lower and 0.40 points higher than HYG’s Alpha and Beta.

Performance

Annual Returns

VYM vs. HYG - Annual Returns

Year VYM HYG
2020 1.14% 4.12%
2019 24.2% 14.23%
2018 -5.87% -1.93%
2017 16.42% 6.09%
2016 16.87% 13.92%
2015 0.33% -5.55%
2014 13.47% 2.0%
2013 30.26% 5.9%
2012 12.68% 13.83%
2011 10.5% 5.89%
2010 14.17% 12.07%

VYM had its best year in 2013 with an annual return of 30.26%. VYM’s worst year over the past decade yielded -5.87% and occurred in 2018. In most years the Vanguard High Dividend Yield Index Fund ETF Shares provided moderate returns such as in 2012, 2014, and 2010 where annual returns amounted to 12.68%, 13.47%, and 14.17% respectively.

The year 2019 was the strongest year for HYG, returning 14.23% on an annual basis. The poorest year for HYG in the last ten years was 2015, with a yield of -5.55%. Most years the iShares iBoxx $ High Yield Corporate Bond ETF has given investors modest returns, such as in 2011, 2013, and 2017, when gains were 5.89%, 5.9%, and 6.09% respectively.

Portfolio Growth

VYM vs. HYG - Portfolio Growth

Fund Initial Balance Final Balance CAGR
VYM $10,000 $33,914 12.20%
HYG $10,000 $19,427 6.42%

A $10,000 investment in VYM would have resulted in a final balance of $33,914. This is a profit of $23,914 over 11 years and amounts to a compound annual growth rate (CAGR) of 12.20%.

With a $10,000 investment in HYG, the end total would have been $19,427. This equates to a $9,427 profit over 11 years and a compound annual growth rate (CAGR) of 6.42%.

VYM’s CAGR is 5.78 percentage points higher than that of HYG and as a result, would have yielded $14,487 more on a $10,000 investment. Thus, VYM outperformed HYG by 5.78% annually.


Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

2) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

3) If you are interested in crypto, check out Gemini. I've started allocating a small amount of assets to the growing crypto space and Gemini has just been a breeze to use. Once you register, make sure to also open an Active Trader account to buy crypto at the lowest fees on the market (just 0.03%!).

To see all of my most up-to-date recommendations, check out the Recommended Tools section.

Leave a Reply